Which of the Following Is Not True About Preferred Stock

question 70

Multiple Choice

Which of the following is not true about preferred stock?

• A) 70% of dividends are nontaxable to other corporations which hold preferred stock.
• B) The after-tax cost is higher than debt with the same yield.
• C) Dividends are legal obligations of the firm.
• D) Preferred stocks are often cumulative in respect to dividends.

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Definitions:

Debts Discharged

The cancellation of a debtor's obligation to pay a debt after fulfilling certain conditions, often under bankruptcy procedures.

Technically Insolvent

A financial state where an entity's liabilities exceed its assets, but it has not yet declared bankruptcy.

Bankruptcy Relief

Legal procedures designed to help individuals or businesses that cannot pay their debts to either eliminate those debts or repay them under the protection of bankruptcy court.

Businesses

Organizations engaged in commercial, industrial, or professional activities with the aim of earning profits.